Why is NFT such an exciting space and what are the challenges ahead?
Updated: Aug 23, 2022
What is an NFT?
NFT (Non-fungible Token) represents ownership in the digital world. Unlike fungible tokens like Bitcoin and Ethereum, where each unit is identical and can be exchanged for one another, NFTs are (mostly) unique.
Why does NFT have value?
That depends what types of NFT you are asking, but in general, NFT has value because:
It provides exclusivity and sense of being part of a community.
It provides esteem needs — Prestige, sense of accomplishment.
Can be used as rare collectables as diversification strategy.
It has other utility, e.g. access rights, gaming, etc.
What are the most exciting NFT at the moment?
(1) NFT as arts and collectibles
The common NFT types under this category includes:
Unique NFT — This is the type of NFT where there is only 1 NFT per unique piece of art. The most signature unique NFT was Everydays — The First 5000 Days by Beeple, which was sold at Christle’s for USD$ 69 million earlier this year.
Unique collections — This is a collection of NFTs where each item has a unique combination of different traits. The most signature one being Cryptopunks by Larvalabs, each punk is a unique, algorithmically generated, 24x24 pixel art image. 9 punks were sold for USD$ 16.9 million at Christie’s, and 1 punk — Alien punk — was sold for USD$ 11.8m in June. The popularity of these NFT reflects a phenomenon of PFP (Profile Picture) mania, where owners of these NFTs began to use them as profile picture on social accounts.
Set collections — This is a collection where there is a set number of the same item in the collection. This is similar to Pokémon and Yu-gi-oh cards in real life but in digital format.
What are the challenges?
Legal challenge — There is no legal status of ownership of NFT yet.
Low effort clones and cash grabbers — Due to the popularity and low barriers to entry, there are increasing number of low effort clones.
Metadata are stored off-chain — Many ownerships on chain only contains the link to the NFT, whereas the metadata is stored off-chain e.g. IPFS or even centralized servers.
Speculative — Similar to the art space in the real world, it is difficult to assign values to art and collectibles, this also means the market is highly speculative and volatile.
That being said, I believe these challenges will be tackled eventually. For instance, there are increasingly more secured off-chain solutions to score metadata, and that low effort clones are finding it difficult to attract investors.
Even though arts and collectibles is an exciting space for NFT, this category of NFT rarely has actual utility and hence, its values are mainly driven by perception and speculations. Please note that I am not saying NFT arts and collectibles are poor investments, I strongly believe in the future of NFT arts and collectibles and they are here to stay. However, I find it more exciting when NFT has utility attached to it, which is why I want to tell you a little more about another NFT space that is growing rapidly.
(2) NFT in gaming
This is what excites me, this represents the next revolution of gaming. Before jumping into it, let me tell you a little more about the types of NFT games.
Collectibles — This represents the first generation of NFT gaming, where players can accumulate and trade in-game NFTs. An example is Cryptokitties back in 2017, where players could buy, collector, hatch and sell NFT cats. Cryptokitties experienced exponential growth quickly after released, which has caused severe congestion in the Ethereum network and amounted to 12% of all Ethereum transactions.
Play-to-earn — This represents the second generation of NFT gaming, where players to bring their NFTs into battle with others, and earn income in the form of tokens and other rewards. An example is Axie Infinity which was released in 2018, which is similar to Pokemon with collectible creatures and battes, they also introduced a dual-token model to further incentivise players to play rather than just trading in-game NFTs.
Don’t traditional games also offer in-game market place for digital assets?
Nowadays big game developers often discourage active trading of in-game assets and accounts. In order to monetize their efforts, gamers can only trade certain digital items offline or off-platform, or through competitive gaming. League of Legends is a case in point.
So what other benefits do NFT games bring?
The asset is not confined to a specific game, the assets can be transferred cross-chain, making the assets more valuable. That also means your asset won’t be gone even if the game is no longer here.
New economies can be unlocked, where assets can be rented out, fractionalized and swapped, essentially creating a digital economy around the usage of these assets.
What are the challenges they are facing though?
The major challenge is the focus on play-TO-earn rather than play-AND-earn (Thanks Sara, these are the perfect terms to describe the current situation). Blockchain game developers rely too heavily on money-making aspect of the game rather than the actual gaming experience. For instance, most blockchain games only contain basic gameplay mechanics and visuals. The emphasize on tradability and money- aspect of the game attract short-term focused seagals and not long-term advocates. Blockchain game developers seems to forget the most important value proposition of a game is still the gaming experience itself.
Here comes Mavia
Mavia is an online multiplayer blockchain based strategy game, essentially a combination of Axie Infinity and Clash of Clans (Yes you heard it right, Clash of Clans, so do not worry about it not being fun enough to play with!). Just imagine fighting another base to capture resources with tradable values, or leasing your land / renting your heroes out to get additional returns, this is something that I believe gamers would absolutely enjoy playing. Mavia is solving the key challenge that the blockchain gaming market is facing.
Mavia has just completed a private round and raised over $37million with leading industry players, and they are expecting to release the beta of the game in Q1 2022. If you are interested in learning more about becoming a beta tester (which I certainly will), do let us know or contact.